End of Day Analysis Archives - Page 12 of 56

Sep 15

It’s gonna get worse, but more important, when it will get better

Free After-Hours Analysis:

Thursday was another rough session for S&P 500 as the index shed an additional 1.3%.

So much for the post-Labor Day rebound. But this wasn’t a surprise for readers of this free blog. As I wrote Wednesday evening:

Bouncing 0.3% on the heels of -4.3% bloodbath is downright pathetic. Stocks rebound from oversold levels hard and fast. And since Wednesday’s bounce was neither hard nor fast, that tells us the market is not oversold yet…at this point, the wind is blowing in the other direction and momentum is clearly lower. Don’t relax because it is about to get worse.

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And as expected, the S&P 500 tested and violated 3,900 support Thursday. Unfortunately, dropping a handful of points under support doesn’t count as capitulation, meaning things need to get even worse before they can get better.

Now don’t get me wrong, I’m an optimist at heart and I’m looking for the next bounce, but we need a little more near-term pain before we break through to the other side. Maybe stocks fall hard Friday morning and that signals capitulation. Or maybe the selling doesn’t exhaust itself until Monday or later next week. But at this point, we still need to drive real fear through stock owners’ hearts before this will bottom and bounce. Until then, look out below.

Tuesday’s crash was shortable. We could continue holding the short through Wednesday’s pathetic bounce. And Thursday’s minor violation of 3,900 was only the warmup act, telling us to stick with the short trade into Friday.

What’s coming on Friday? More pain.

But the important thing to remember about short trades is they always end in a hard and fast bounce, so don’t get greedy. Just when this trade looks like it is unstoppable is when we need to pull the ripcord and lock in those short profits because holding a few hours too long will wipe out a big portion of our profits.

And when we bounce, be ready to grab that next wave higher because those first few hours will be very profitable. Maybe the bounce arrives Friday. Maybe it comes Monday or later next week. But it will be here very soon and we need to be ready to jump aboard as soon as the selling climaxes in a spectacular and obvious way.

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Sep 14

Why this is about to get a lot worse (and when it will start getting better)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced 0.34% Wednesday. While this would count as a respectable performance under most circumstances, unfortunately, these are not normal times.

Bouncing 0.3% on the heels of -4.3% bloodbath is downright pathetic. Stocks rebound from oversold levels hard and fast. And since Wednesday’s bounce was neither hard nor fast, that tells us the market is not oversold yet.

The optimist sees prices holding above 3,900 support. And without a doubt, Wednesday’s lack of follow-on selling brought some much-needed relief to warry stock owners. But Tuesday’s selling was emotionally charged and if there is one thing we know about emotional selloffs, they don’t bounce neatly off of support. Instead, they crash through support, send everyone scrambling for cover, and then bounce only after the crowd has given up hope.

Have we gotten to the point where all hope is lost? It definitely doesn’t feel like it.

Now, don’t get me wrong, I love buying the biggest down day of the entire decline because that often signals capitulation. The difference between those buyable crashes and Tuesday’s selloff is the latest tumble wasn’t plunging to fresh lows. Instead, we simply slipped back to levels from last week.

While a 4% bloodbath will get anyone’s attention, it doesn’t count as capitulatory selling until we are falling to levels no one thought was possible only a few days before. And since we were at these levels a few days ago, this doesn’t count.

No doubt Wednesday’s bounce could carry a little further on Thursday, but at this point, the wind is blowing in the other direction and momentum is clearly lower. Don’t relax because it is about to get worse. How much worse is anyone’s guess, but a terrifying violation of 3,900 support is clearly in the cards.

How much further we go under 3,900 is still up in the air and we will learn a lot more about the market’s mood when we get there. If supply dries up after violating widely followed support, then the bounce is near. If the panic selling resumes, hold on to your hats.

Of course, after this crashes through support and everyone else is panicking, that’s when we start looking for the next buyable bounce.

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Sep 13

Turning lemons into lemonade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 crashed more than 4% Tuesday after the monthly inflation report came in higher than expected.

The panic selling wasn’t triggered because inflation continues accelerating. In fact, August’s 8.3% reading was under June’s 9.1%. The problem is the July and August stock market rebound was largely based on hopes inflation was moderating even quicker than this. And August’s stubbornly high inflation report dashed those hopes, sending stocks tumbling.

Now, before we throw the baby out with the bath water, Tuesday’s selling only pushed the index back to levels it was at several days ago. But this is one of those half-full, half-empty things. The half-full person sees an index still holding above 3,900 support. The half-empty person sees all the air underneath us if 3,900 support fails.

Will 3,900 support hold? That’s hard to say. But the thing we know for sure is emotion, and thus volatility, is off the chart. No matter what happens next, the move will be oversized. Either a hard and fast rebound from oversold levels or a spectacular crash through near-term support.

Lucky for us, we are nimble traders, so we don’t have to guess ahead of time. Instead, we wait for the market to make its next move and then we jump aboard.

While there is no way to predict a 4% crash, that doesn’t mean we can’t navigate these gyrations successfully. I am fully willing to admit I came into Tuesday’s session long. Last week’s rebound was acting well and there is no reason to abandon a trade that’s working. But lucky for me, my trading plan kept me safe. I buy bounces early and that extra margin made all the difference on Tuesday.

Tuesday’s open gap jumped my trailing stops and when the early bounce failed to stick, I had no choice but to pull the plug. And since I bought my positions last week, that still meant collecting some profits. Definitely not the profits I had in mind Monday afternoon, but on a day when everyone else is running around with their hair on fire, pulling smaller than expected profits isn’t a bad problem to have.

And it’s a good thing my trading plan pulled the plug early Tuesday because the index fell another 100 points before the session was over. This won’t rank anywhere near this year’s most profitable trades for me, but it will probably be one of my better trades because trading well doesn’t always show up in the P&L. Avoiding a loss is just as important as making money.

(I made some quick money shorting the afternoon swoon, but that was an opportunistic trade and not a strategic move.)

Now it’s time to wait and prepare for the next bounce…

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Sep 12

Stick with what’s working

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday nicely higher.

A midday step-back tried to unwind some of these gains, but rather than join in the selling, most owners shrugged and prices quickly bounced back near the intraday highs.

If last week’s rebound was built on a pile of sand, the lunchtime swoon was more than enough to trigger a larger wave of follow-on selling. But so far most owners are comfortable holding for higher prices, meaning there is some substance to these prices.

We’ve been waiting a while for the back half of September and now that it’s finally here, we can start taking the market’s price action more seriously. That’s because institutional money managers are back at work and getting ready for the final months of 2022.

While we shouldn’t expect a dramatic change in the market’s behavior overnight, we can put more faith in any of the signals it gives us. And so far, it seems like big money is fairly comfortable with prices at these levels since they haven’t hit the sell button yet.

Maybe this changes tomorrow or next week, but so far, things look pretty good.

Hold the bounce, lift stops, and see what happens. There isn’t much else to do here.

Hold with stops spread across the mid-4k’s. Momentum is still at our back and so far most owners are resisting the urge to sell.

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Aug 29

Are we on the verge of the next leg lower?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 was crushed last Friday and it added to those losses Monday. But on the heels of Friday’s -3.4% bloodbath, Monday’s -0.7% loss felt almost quaint. The index even managed to poke its head into the green during Monday’s session. Unfortunately, that momentary relief was short-lived and prices slipped back near the intraday lows by the close.

The bloodletting started Friday when Powell announced the Fed’s primary focus was fighting inflation and it wasn’t going to let up until the job was done. That mirrors what he’s been saying all along, but it spooked some investors that were hoping for a lighter touch and a quicker return to easy money.

Complicating issues is we are quickly closing in on the Labor Day holiday and many institutional investors are spending the final weeks of summer somewhere other than behind their desks. That means big money managers are not there to steady the market if small investors overreact to these headlines and price action. The saving grace is these small fries don’t have much money, meaning they run out of ammunition fairly quickly and these irrational swings tend to stall and reverse fairly quickly.

What’s that mean for us? Well, it would be foolish to assume the worst is already behind us. These things are rarely one or two-day events. But at the same time, if big money is MIA and not participating in the selling this week, supply could dry up fairly quickly.

A violation of 4k support seems highly likely, but at this point, that will probably signal capitulation selling and not the start of the next big leg lower.

I’m not saying we can’t fall a lot lower than 4k over the next few weeks or months, just that it won’t happen until big money returns from vacation in the second half of September. Until then, expect the elevated volatility to persist, but in a more back-and-forth sort of way.

A really nice setup would be buying a violation of 4k support that bounces back above this key level. Put your stops under support and see what happens.

As for those of us with short profits from Friday and Monday, don’t get greedy and be ready to take profits soon. If the selloff resumes in the back half of September, it will be easy enough to reshort the market. In the meantime, it would be a real shame to let those profits disappear if prices bounce in a near-term relief rally.

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Aug 22

Is this the start of the next big crash?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 tumbled Monday, extending Friday’s losses and the index now finds itself 5% under last week’s highs.

As my dad always used to remind me when I was a kid, easy come easy go. Luckily for readers of this blog, we were on high alert and ready for this pullback. As I wrote in last week’s free post, “How much higher can this go?“:

While I’m not in the business of picking tops, this is pretty darn high and at the very least, we can say the risk/reward is no longer lined up in our favor.

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Sometimes it is better to be lucky than good and I was definitely lucky when I wrote that post hours before this latest round of selling started. But just because I didn’t know exactly when the next step-back was going to start doesn’t mean we can’t be smart about our positioning when the odds are no longer stacked in our favor.

In this case, that meant taking some profits proactively last week and keeping a trailing stop nearby for the remainder of our position. And now that the market is 170 points lower, while other investors are filled with fear and dread, wondering if they should abandon ship before things get worse, I’m watching this from the sidelines with a pile of profits that I’m getting ready to throw back into the market as soon as this bounces.

Headlines remain largely the same, meaning this latest round of selling is little more than traders waking up to all of the risks they were ignoring last week. And so continues the swinging pendulum of sentiment. One week everything is great. The next week the sky is falling. Funny how that works.

Without a major headline catalyst driving this selling, I don’t expect it to go far. This is the kind of stuff that bounces before support and doesn’t crash through it.

The problem trading this gyration is we don’t know if “bouncing before support” means bounce above 4,100 or bouncing above 4k. But rather than try to guess, as smart traders, we let the market lead the way and we buy after it bounces, not before.

Odds are pretty good we will spend some time in the red Tuesday, but be on the lookout for that next bonce and be ready to jump on it. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

And if Tuesday’s bounce doesn’t stick, no big deal, we pull the plug at our stops and try again Wednesday.

I have no doubt things can and will get worse later this fall, but we are still stuck in the final weeks of summer and that means we shouldn’t expect major moves in either direction while big money is still at their summer cottages.

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Aug 16

How much higher can this go?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished in the green for the fourth day out of the last five trading sessions. And that single red day slipped an imperceptible 0.07%, so does that really even count as a down day? Probably not…

It’s been a great run since the July lows. Just when it looked like we were on the verge of another scary leg lower, the index rebounded 600 points instead. So much for listening to popular opinions.

As I reminded readers at the July lows:

Inflation remains bad. Same with the war in Ukraine and as expected, consumer sentiment is in the toilet. But everyone already knows these things and that is why the index is down 23% YTD. Recycling the same headlines doesn’t surprise anyone and that’s why this week’s bad news hasn’t sent stocks tumbling under June’s lows. The people who fear these headlines sold months ago and that means there is no one left to sell a retelling of those same headlines.

That day the index bottomed at 3,721 and it hasn’t looked back since. And here we are, almost exactly one month later and the index just crossed 4,300.

Who could have seen this coming? We could!!! That’s because these things always happen. Stocks bottom when everything looks their worst. And it didn’t get much worse than the highest inflation in 40 years and the biggest war in Europe since WWII.

But now that everyone is feeling better, is it time to relax? No of course not!!! This is when we need to be the most paranoid.

While it didn’t feel like it, buying in July was actually safe because stocks were already heavily discounted and most of the damage had already been done. But now that the index rallied 18% from the summer doldrums, we find ourselves in the exact opposite situation. Stocks are now pretty darn expensive. That 600-point rally consumed a whole truckload of upside, meaning there isn’t a whole lot left in the tank.

And let’s not forget, we are still stuck with the highest inflation in 40 years, a war in Europe, the most aggressive Fed rate hikes in decades, and an economy that might or might not be in a recession.

The market loves to overdo it. It went too low in June and July. And without a doubt, this rebound will end by going too high. The only question is if this 200-point rally in five days is what finally pushed us over the top.

While I’m not in the business of picking tops, this is pretty darn high and at the very least, we can say the risk/reward is no longer lined up in our favor. With at most, one or two hundred points of upside left in this rebound, and as much as 400 points of risk underneath us, it is really hard to like buying this risk/reward.

I’m more than happy to keep riding this wave higher as long as the easy money continues rolling in (I’m holding and lifting my trailing stops), but I’m standing next to the exits because this won’t end well for the people that stick around too long.

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Jul 27

Are savvy traders holding the breakout or selling the resistance?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was a great session for the S&P 500 as a 1% opening pop turned into a 2.6% surge by the close. And just as important as the headline numbers, the index closed comfortably above 4k for the first time in nearly two months. Not bad for a market people were leaving for dead a few weeks ago.

A couple of factors lead to Wednesday’s buying frenzy. First, Tuesday evening’s poor tech earnings got the party started and Powell brought the punch bowl Wednesday afternoon when he hiked interest rates a whopping 0.75%.

While neither of these developments qualifies as “good” news, stocks don’t need good news to rally in bear markets. Instead, “less bad than feared” is the name of the game. As poor as tech earnings are and the Fed continues slamming on the monetary brakes, investors are relieved things are not even worse.

While Wednesday was a great session to be holding a 3x leveraged ETF, at this point, that is water under the bridge and what readers really want to know is what’s coming Thursday and Friday.

The market hit its head on 4k resistance last week and retreated back to 3,900, but the fact we returned to 4k resistance so quickly tells us the market wants to be up here, not down there. Combine that with a great day that was driven by better-than-expected news, this breakout still has room to run. How much further is anyone’s guess, but 4,200 is very much in play as long as we remain above 4k.

As for how to trade this, keep holding the 4k breakthrough and lifting our stops. There is no reason to abandon a trade that is working prematurely, so I’m not a fan of impulsively selling this strength because “it feels too high.” A test of 4k support Thursday is normal and expected. Even a minor violation of 4k wouldn’t bother me as long as the selling dries up and the index quickly reclaims 4k.

On the other hand, if the selling accelerates under 4k again, that tells us the market isn’t ready and it needs to retrench a bit longer. Lock in some really nice profits and get ready to buy the next bounce.

But I think that will happen. Any test of 4k will be quick and Thursday is setting up to be another good day.

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Jul 19

Don’t under estimate “less bad than feared”

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Monday’s intraday skid started the week off on the wrong foot, but Tuesday’s towering 2.8% gains erased all of those second thoughts and then some on our way to the highest close in over a month.

For as many negative headlines as there are swirling around us, stock investors don’t seem overly concerned. In fact, this seems to be a fairly bullish case of “less bad than feared”.

The economic data is awful, but everyone who fears these things sold months ago and those sellers were replaced by confident dip buyers. While our problems are a long way from getting solved, it seems the market is coming to terms with our new reality and recycling the same headlines is no longer enough to trigger another leg lower.

Tuesday’s close put the index above the 50dma for the first time since April. Maybe this breakthrough sticks or maybe we get turned back by it, but as close as we are to 4k resistance, the market rarely gets this close without at least challenging a widely followed level.

After we hit overhead resistance, it could be challenging to find new buyers and this latest rebound might start running out of momentum. But that’s a conversation for another day. In the meantime, for those of us sitting on a pile of profits, there is nothing to do but keep holding and lifting our trailing stops.

If this rally dies at resistance, we lock in profits at our trailing stops. If the rally continues through 4k, even better, we keep holding and lifting our stops.

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Jul 14

Why savvy traders don’t give up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell out of bed Thursday morning for the second day in a row. But just like Wednesday, the selling stalled nearly as soon as it arrived. After an hour of reflexive selling, the supply of fearful owners dried up and the index spent the rest of the session climbing nearly 80 points above those early lows.

While Thursday didn’t give me the start I was looking for, as I often remind readers, how we finish is far more important than how we start. And for the second day in a row, I really liked the close.

Inflation remains bad. Same with the war in Ukraine and as expected, consumer sentiment is in the toilet. But everyone already knows these things and that is why the index is down 23% YTD. Recycling the same headlines doesn’t surprise anyone and that’s why this week’s bad news hasn’t sent stocks tumbling under June’s lows. The people who fear these headlines sold months ago and that means there is no one left to sell a retelling of those same headlines.

Without a doubt, things are bad, but the bad is more or less staying the same. Which for the time being, is good enough to keep a floor under stocks. The problem we’ve been running into isn’t happening during regular hours when the market has actually been trading fairly constructively. Our problems have been festering overnight when smaller and more emotional retail traders are throwing their weight around in the futures markets. These little guys send futures tumbling in the middle of the night when big money is sleeping and that leads to these large opening gaps.

But lucky for us, big money doesn’t agree with these impulsive overnight traders and refuses to join the selling when the main session opens. And when that selling fails to show up, prices naturally start drifting higher.

As I wrote Wednesday, I liked the way the market is trading during the regular session despite these opening gaps. This still looks like a fairly resilient market.

Thursday’s early weakness squeezed me out of the trial position I bought Wednesday for a modest loss. But rather than give up on this trade, as soon as I get out of the market, the first thing I do is start looking for the next entry point. And as luck would have it, Thursday’s late morning bounce gave me that buy signal. And when the index kept going higher through the day, that was enough reassurance for me to add more near the close.

It never feels good selling and buying back in hours later, but it sure beats the feeling of holding something while the losses keep piling up. When forced to choose my poison, I will always pick selling unnecessarily over holding too long.

Maybe futures will tumble again in the early hours of Friday morning, but these little guys are going to run out of money eventually. As we saw Wednesday and Thursday afternoons, this market doesn’t want to go down. And the best thing about a market that refuses to go down is it will eventually go up. As long as we are willing to keep at it, we will be in the right place at the right time to ride the next wave higher.

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Jul 13

Why stocks didn’t crash after inflation hit yet another new high

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell out of bed Wednesday morning and dropped more than 1% after June’s inflation reading hit yet another new high.

While the increase in inflation over May was only a fraction of a percent, the increase shows the Fed still doesn’t have control over this economy. (So much for transitory…)

But rather than rush for the exits, most owners shrugged at the inflation headlines and opening weakness and continued holding. When people stop selling the headlines, those headlines stop mattering and that indifference was the name of the game Wednesday afternoon. By the close, the index recovered more than 2/3 of those early losses, even briefly making it into the green.

That’s not the price action we see from a fragile market. If the indexes were on the verge of another collapse, Wednesday’s inflation headlines were more than enough to send panicked owners running for cover. But here’s the thing, after 6 months of panic selling, it seems we finally ran out of panicked sellers. And more than just that, the first half’s sellers were replaced by confident dip buyers that demonstrated a willingness to buy and hold this uncertainty.

While there are no guarantees prices cannot fall to new lows if the headlines get materially worse, Wednesday’s constructive price action tells us it will take something even bigger than 9.1% inflation to send these stubbornly confident owners running for cover.

If the market opens higher Thursday morning, rather than argue with that counter-intuitive strength, jump aboard the bandwagon. Moves that don’t make sense often make some of the best trades (contrarian investing). Put a stop under Wednesday’s close and see where this latest wave takes us.

All of that said, the market is transitioning into a more choppy phase and that means we should be ready to take profits earlier and more often than we were doing this spring.

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Jul 05

What this sideways chop tells us about the bear market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

If a person only saw Tuesday’s S&P 500 closing print showing a 0.16% gain, it would be easy to assume it was just another boring, meaningless session. Oh, how wrong they would be.

Tuesday was another rollercoaster ride, with the index plunging more than 2% in early trade before a late morning rebound erased all of those losses and then some.

As I wrote last week, the bear market is transitioning from large, multi-day moves to more sideways chop. One day’s down is followed by the next day’s up. But this is pretty standard behavior as a correction matures and people adjust their expectations to our new reality.

There is still a lot of uncertainty causing this back-and-forth, but as emotion leaks out of the market, every violation of support no longer triggers waves of panicked owners selling stocks. In fact, we start getting days like Tuesday where an ugly open is met with buying, not follow-on selling.

What comes next? Well, Tuesday’s close leaves us pretty much in the middle of the 3,600(ish) to 4k(ish) trading range. That means the scales are not skewed more in one direction than another and this could easily go in either way. And in fact, that’s exactly what it’s been doing as it keeps dropping and bouncing from day to day.

As for how to trade this, Tuesday’s strong performance was a clear sign to close any shorts we might have been holding over the weekend. As easy as it is to re-short the market, there is no reason to stubbornly stick to a potion and hope it turns around and starts going our way. Instead, close, move to safety, and reassess. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

And an aggressive trader could have even bought Tuesday’s afternoon bounce. But because the market is getting choppy, factor that into your trading decisions by trading smaller and waiting for a trade to start working before adding more.

If prices retreat Wednesday, no big deal, we get out near our entry points and wait for the next trade. Maybe that’s buying the next bounce or shorting the next breakdown. But if Tuesday’s rebound keeps going, add more and see where it goes.

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Jun 29

Was Wednesday the calm before the next storm?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was a quiet session for the S&P 500 as the index finished almost exactly where it started. That was a welcome relief following Tuesday’s massive bearish reversal.

Does Wednesday’s stability suggest the worst is already behind us? I wish the market was that easy. Unfortunately, these things are rarely one-day events and that means the ugliness will likely continue Thursday and/or Friday.

While last week’s 6.5% rebound was impressive and 4k seemed within reach, the further along we get into a selloff, the less energy these moves have.

Early in the correction, selloffs and rebounds crashed through support and resistance. But after a while, investors start getting used to our new reality and emotion starts coming out of the market. That’s when these swings start stalling and reversing before reaching key support and resistance levels.

Nearly six months into the 2022 bear market and it makes sense last week’s rebound stalled before reaching 4k resistance.

But if the rebound stalled under 4k, then that means we are already riding the next wave lower. Maybe prices slip to 3,700 and find support. Or maybe we need to retest the lows near 3,600. Either way, both of those down legs involve further declines from here.

Or maybe Tuesday really was a rare one-day event, we bounce off of 3,800 support, and finally get up to 4k resistance. While not the most likely outcome, it is still very much a possibility.

Lucky for us, we are nimble traders and don’t need to commit to anything. Buy the bounce off of 3,800 and short the breakdown under 3,800. No matter what the market does next, we will be ready for it.

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Jun 28

Why Tuesday’s ugly turn wasn’t a surprise

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday started off well enough with the S&P 500 popping nearly 50 points in early trade. But that opening bounce was as good as it got and it was all downhill from there. And when I say downhill, what I really mean is we fell off a cliff, dropping nearly 130-points from those intraday highs.

Consumer confidence is in the toilet and that was enough to bring the sellers back following last week’s impressive 6.5% bounce.

As I’ve been saying for a while, this is a volatile market and that means oversized moves in both directions. Every bit of up is inevitably followed by a bit of down. And what we got that in spades on Tuesday.

But Tuesday’s volatility shouldn’t surprise regular readers of this blog, as I wrote Monday evening:

Now that stocks are dramatically higher, a big chunk of the upside has been realized and the risks of a near-term pullback have increased. While we can stick with this bounce as long as it remains above our trailing stops, this is the time to be getting defensive and ensuring these nice profits don’t escape.

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I was hoping the rebound would take us closer to 4k resistance before running out of momentum, but the market’s never once asked what I thought, so I have no choice but to follow its lead. While I came into the day still holding last week’s nice bounce, the selling quickly forced me to lock in some really nice profits in the mid to upper 3,800s. While not as juicy as I wanted, I have no right to complain about the nice profits the market gave me. (Catching a big portion of a 6.5% pop in a 3x ETF pays really well.)

When Tuesday’s midday selling didn’t relent, that was our invitation to initiate a short position. Shorting a bull market is one of the hardest ways to make money in the market, so it’s a good thing we are not in a bull market. But that still means we need to be really careful. Shorting successfully takes impeccable timing, so don’t be afraid of taking profits early and often. Hold a little too long and those short profits will be gone.

As for what to do on Wednesday, easy, buy a bounce and short a breakdown. This is an emotional market and that means oversized moves in both directions. Grab on early and enjoy the ride.

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Jun 27

Why the stock market is more predictable than most people think

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday ever so slightly in the red. While a 0.3% loss isn’t trivial, it is fairly insignificant compared to last week’s staggering 6.5% gains.

While one day of support isn’t conclusive, the longer we hold last week’s gains, the more real they become. So by that measure, every hour further we get into this Tuesday and Wednesday, the better it looks.

Headlines haven’t changed in a meaningful way, but that’s kind of the point. This year’s 20% retreat from the highs priced in a whole lot of bad news. That means we are not deciding if the economy is good or bad, but if it is bad or really bad. And at least for the time being, our environment seems less bad than investors were fearing two weeks ago when stocks were testing multi-year lows.

But this isn’t a surprise. As I wrote the on the evening of June 16th, hours before last the latest big rebound kicked off:

Maybe we get a little more selling on Friday, but everyone knows markets moves in waves and after falling more than 500 points over a handful of days, the next near-term bounce is just around the corner.

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We don’t need to be psychic to know what the market is going to do because it always does the same things. In this case, emotional selloffs get carried away and go too far. And when that happens, it means an equally impressive rebound is coming up. And that’s exactly what we got.

Predicting the market is easy, the hard part, and where all of the money is made, is getting the timing right. And that’s where it pays to be a nimble trader. We don’t buy dips, we buy bounces. Start small. Get in early. Keep a nearby stop. And only add to a position that is working.

Catch part of last week’s 6.5% rebound in a 3x ETF and now we’re talking real money!

But now that stocks are dramatically higher, a big chunk of the upside has been realized and the risks of a near-term pullback have increased. While we can stick with this bounce as long as it remains above our trailing stops, this is the time to be getting defensive and ensuring these nice profits don’t escape.

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Jun 23

The simplest and best trade staring us in the face

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was another back and forth session as the market digested Powell’s second day of testimony before Congress.

At this point, the Fed is no longer counting on a soft landing for the economy and they plan on keeping interest rates elevated until inflation starts coming down in a clear and convincing fashion. That means they could continue applying the brakes even if the economy slips into a recession. Hence, the increased likelihood of a “hard landing”.

Wednesday the market rallied during Powell’s testimony and slipped into the close after he finished. Thursday gave us the mirror image as the market slumped during his testimony and then rallied after he concluded.

One day down, the next day up. And so continues the battle between bulls and bears. The index remains nicely above last week’s lows, but it also seems stalled just under 3,800.

As obvious as this sounds, either the market clears this sideways consolidation under 3,800 or it doesn’t. The nice thing about binary setups is they are very tradable. Either we buy the breakout or we sell the breakdown. And the longer we stay within this range, the more coiled the spring becomes, meaning the resulting breakout/breakdown will be even larger.

At this point, expect the resolution to either run up to 4k resistance or drop under recent lows near 3,600. Maybe there will be a head fake or two along the way, but as long as we start small, get in early, and keep a nearby stop, the costs of being early are small. More important is we make sure we stick with it and are standing in the right spot at the right time when this thing finally makes its next move. (Today’s nice close gives the bulls the edge.)

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Jun 22

What Wednesday’s price action means for the latest bounce attempt

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday’s seesaw session threw us for a loop, with a -1.2% opening loss bounced into the green an hour later. The intraday reversal even rallied as high as +1% before settling back near breakeven by the close.

I really, really liked the morning reversal. Selling evaporated moments after the open as buyers rushed in to prop up the market. And everything looked amazing when the intraday rally crested +1%. That was a 2% gain from the open and everything was going swimmingly, that is until a late slump erased all of those midday gains.

In the news, Powell testified to Congress that the Fed is still planning on aggressively raising rates and that risks pushing the economy into a recession. But as bad as those soundbites seem, the market was actually received well and investors were relieved those comments were not even worse.

Sometimes bad news can be good news when it isn’t as bad as feared and that’s the scenario we found ourselves in around lunchtime. Our economic environment is far from great, but at least it is not getting worse. Or at least that’s how the midday logic went.

And with stocks at 52-week lows, the path of least resistance seemed to be higher. At least until a wave of second-guessing overcame the market in the final hour of the day.

As I often remind readers, it’s not how we start but how we finished that matters most. And by that measure, it was both a good day that we bounced off of the early lows and an inconclusive day in that we skidded into the close. I loved how stocks ricocheted off of the opening lows. But the lethargic close showed a real lack of conviction by institutional investors in the final hours of the day.

I started buying the bounce Friday afternoon, added more Tuesday, and was loading up on additional positions Wednesday morning. But that late slump gave me second thoughts. As easy as buying back in is, it made sense to take some risk off the table. If stocks continue higher Thursday, I can always buy back in. But if the market retests last week’s lows, the best place to be is cash.

Since I was sitting on a modest profit, I decided the bigger crime would be allowing that to turn into a loss if the second-guessing continued Thursday. It seemed prudent to take some risk off the table and close some positions proactively.

In trading, defense always comes first, especially when doing something as risky as trying to catch a bounce. When these things work, they tend to really work. And Wednesday afternoon didn’t feel like the bounce was working. That’s all I needed to pull the plug while my trade was still above breakeven. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

But as soon as I’m out, I’m already looking to get back in and will happily buy a bounce Thursday morning. And if that bounce doesn’t happen Thursday, then I’ll be waiting for it on Friday or Monday. Just because Wednesday’s close was indecisive doesn’t mean I’m giving up on this trade. I just didn’t like the risk/reward at that particular moment in time. A lot can change in a few hours so I’m already looking forward to what Thursday’s price action will bring us.

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Jun 21

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 came back from the three-day weekend well-rested and promptly popped 2.5% Tuesday.

Headlines haven’t improved in a meaningful way, but more importantly, they haven’t gotten worse either. Last week’s tumble to fresh lows seems to have reached a near-term capitulation as it ran out of fearful sellers, giving us this nice little bounce.

I’m under no delusion and think lower prices are still ahead over the medium and longer-term. But at the same time, I recognize markets move in waves and I also know bear markets have some of the biggest bounces on their way lower.

As bad as things felt last week, the selling got a bit ahead of itself and a near-term bounce seems appropriate. How long this lasts and how far it goes is anyone’s guess, but 4k resistance is very much on the table if we string together a few more nice up days. (A bounce back to 4k from Friday’s close represents a 9% gain in the index. Catch part of that wave in a 3x ETF and now we’re talking about real money!)

Buy the bounces and sell the breakdowns. Seems easy enough but we must have the courage to actually do it.

Now that the market is bouncing, it is time to close our shorts and start buying the bounce. Start small, get in early, keep a nearby stop, and only add to a trade that’s working. Follow those simple rules and there is money to be made. Or at least, it opens the door to a very attractive, low-risk trade.

Maybe we need to bounce a few times before making our way back up to 4k, but unless someone is psychic, we won’t know which bounce is the real bounce until after it happens. And since I’m not psychic, the best I can do is treat all of the bounces as if they are the real deal until they prove me wrong. But as long as I start small, get in early, and keep nearby stops, any mistakes will be fairly inconsequential, especially when compared to the profits that come from riding the next wave higher.

Trading is a game of risk versus reward and right now the risk/reward is stacked in our favor. Buy the bounce, move our stops up to our entry points as this rebound progresses, and if we get stopped out, no big deal, we step aside and wait for the next bounce.

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Jun 16

Are savvy traders running from this market or are they getting ready to buy the next bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

So much for the Fed bounce, the S&P 500 gave back all of Wednesday’s gains and then a chunk more, finishing at the lowest levels in a year and a half. Ouch!

Gas is pushing $5/gal, mortgage rates are creeping up to 6%, consumer confidence is tumbling, and inflation remains stubbornly stuck at 40-year highs. Oh yeah, and there’s the biggest war in Europe since WWII. But other than that, things are going pretty well.

As poorly as everything feels, stocks are not oblivious and their nearly 25% decline reflects a lot of this pain.

Most bear markets bottom out between 25% and 30%, meaning we are most of the way there for a vanilla bear market. There are exceptions, like the Great Depression and the Great Recession, but the banking system nearly imploded in those episodes and for a repeat, we’d need to see something equally terrifying.

While $5/gal oil is painful, the biggest problem we have right now is most people have too much money and are bidding against each other for housing, cars, and everything else that is in short supply. Our biggest problem is the economy is too hot and the Fed is trying to cool things off.

Does that sound like our current situation has anything in common with the worst bear markets in history? No, not really.

And so while people are afraid of how much worse this will get, it is a little late to be worrying about that kind of stuff seeing as how most of the damage has already been done to stocks.

Maybe this grinds sideways for a year or two, which wouldn’t be a big surprise. But fearing a 40% or 50% selloff from the highs doesn’t match our current economic situation.

As for how to trade this, while Thursday’s 3.3% decline sounds bad, stocks ground more sideways than anything following the gap lower at the open. That means few people were rushing to sell stocks through the day, which is the first thing that needs to happen before we find a bottom.

Maybe we get a little more selling on Friday, but everyone knows markets moves in waves and after falling more than 500 points over a handful of days, the next near-term bounce is just around the corner.

I covered my short Wednesday, which proved to be a little early, but that’s the way this goes sometimes. Once we realize only fools try to pick tops and bottoms, that means accepting we will always cash in a little too early or a little too late. That’s just the nature of the game.

But now that I’m out, I’m already looking to get back in. The next trading opportunity that excites me most is a nice bounce back to 4k resistance. It could start as soon as Friday, so be ready.

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Jun 15

What made Wednesday’s bounce so predictable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced nicely after the Fed got aggressive and hiked interest rates by 0.75%.

The market’s reaction seems counter-intuitive, but lucky for readers of this blog, it was the most likely outcome I flagged in Tuesday evening’s free post:

While this latest tumble was largely spurred by expectations shifting to a 0.75% Fed rate hike this week, this could very easily turn into a “sell the rumor, buy the news” event. This latest wave of selling priced in most, if not all of the widely expected rate hike, so when the news becomes official Wednesday afternoon, there might not be much selling left to do. And when a large wave of follow-on selling fails to materialize, we often see prices rally in relief that things weren’t worse.

The most likely scenario is the index reflexively crashes immediately following the Fed’s announcement of a 0.75% rate hike, but not long after, the selling capitulates and prices bounce, giving us that oh-so-beautiful “V” bottom.

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While bears were expecting another large selloff, stocks bounced because all of the people who were afraid of a 0.75% rate hike sold over the previous four sessions, meaning there was no one left to actually sell the news. And more than that, some investors were actually reassured by the Fed’s aggressive stance on inflation. Attacking inflation harder in the short term will keep this from dragging on, or at least that’s the hope.

As for how to trade this, when the rate hike failed to trigger a larger wave of selling, that was my signal to lock in some really nice short profits and get ready to buy the bounce. I still think we have lower prices ahead of us over the medium and longer-term, but over the near-term, if Wednesday’s bounce holds Thursday, 4k resistance is the most likely next target.

Any bears with nice short profits should be getting real protective because those profits will disappear if they hold much longer. As easy as it is to reshort the market when the selling resumes, lock in some nice profits here and get ready for the next breakdown.

As for dip buyers, here is our chance for a quick 200-point rally. While that doesn’t seem like a lot, catch that 5% wave in a 3x ETF and now we’re talking real money for a few days of “work”.

Cover shorts, buy the bounce, and leave stops/reshort under Tuesday’s lows. That seems easy enough.

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